How to Use This Calculator
- Monthly Payment ??enter home price, down payment, rate, and term. The right panel shows the full PITI (principal + interest + taxes + insurance) plus HOA and PMI when applicable.
- Amortization ??uses the loan from the Monthly Payment tab. Add extra principal to see how it shortens the loan and trims interest.
- Affordability ??works backward from income to a maximum home price using the 28/36 rule.
- Refinance ??compares your existing loan with a new one, including closing costs and the break-even month.
What's in a Mortgage Payment (PITI)
U.S. lenders bundle four components into one monthly payment:
- Principal ??pays down the loan balance.
- Interest ??the lender's cost of money, charged on the outstanding balance.
- Taxes ??property taxes, usually collected in escrow by the lender and paid to the county once or twice a year.
- Insurance ??homeowners insurance, also typically escrowed.
HOA dues (for condos, planned communities) and Private Mortgage Insurance (PMI) sit alongside PITI but are not always escrowed. PMI is generally required when the down payment is below 20% of the home's value and can be removed once equity reaches 20%.[1]
Amortization
A standard U.S. mortgage is fully amortizing: each scheduled payment is the same, but the split between principal and interest shifts over time. Early payments are mostly interest; later payments are mostly principal. The monthly principal-and-interest amount comes from:
Extra principal goes directly against the balance, so it skips all the future interest that would have been charged on that money. Even modest extra payments can shave years off a 30-year loan.
The 28/36 Rule
A long-standing lender guideline:
- 28% ??your housing payment (PITI + HOA) should not exceed 28% of gross monthly income (front-end ratio).
- 36% ??your total debt payments (housing + car + student + credit cards) should not exceed 36% of gross monthly income (back-end ratio).
Different programs allow higher ratios ??FHA loans go up to 43% DTI or more ??but 28/36 is a useful sanity check.[2] The Affordability tab solves for the home price where both ratios are satisfied.
Fixed vs. Adjustable Rates
A fixed-rate mortgage locks the interest rate for the full term ??typically 30, 20, or 15 years. The 30-year fixed is the most common U.S. loan; the 15-year fixed has a lower rate and roughly half the lifetime interest, but a much higher monthly payment.
An adjustable-rate mortgage (ARM) starts with a fixed period (5, 7, or 10 years) and then adjusts based on an index (currently SOFR for most new contracts).[3] ARMs typically carry lower introductory rates but expose you to rate risk. This calculator models fixed-rate loans only.
Refinance Break-Even
A refinance trades closing costs today for a lower payment tomorrow. The break-even month is when accumulated monthly savings exceed the closing costs:
If you expect to stay in the home longer than the break-even, refinancing usually pays off. Watch for two complications: extending the term resets the amortization clock (you may pay more total interest even with a lower rate), and rolling closing costs into the new balance is borrowing more ??the lifetime cost is higher than it looks.
Frequently Asked Questions
Is the result the same as a lender quote?
Close, but lenders factor in credit score, loan program, points/credits, and state-specific fees that this calculator doesn't model. Use a Loan Estimate for binding numbers.
How do points work?
One point = 1% of the loan amount paid up front in exchange for a lower rate (typically about 0.25 percentage points off). They behave like prepaid interest; the break-even is similar to a refinance calculation.
Why do early payments feel like they barely move the balance?
Because they're mostly interest. On a 30-year mortgage at 7%, less than 20% of each payment in year one goes to principal. The schedule shifts gradually over time.
References
- [1] U.S. Consumer Financial Protection Bureau ??Mortgage Insurance. consumerfinance.gov
- [2] Wikipedia, "Debt-to-income ratio" (CC BY-SA 4.0). en.wikipedia.org/wiki/Debt-to-income_ratio
- [3] Federal Reserve Bank of New York ??SOFR. newyorkfed.org/markets/reference-rates/sofr
Educational content on this page is original prose written for MODOO. Material referenced from Wikipedia is used under the CC BY-SA 4.0 license.